Investors chase shorter leases as industrial prices outrun rents

Trade and political risks force a shift toward factories with less than 30 years remaining on leases.

Appetite for shorter-tenure industrial assets is growing as investors become cautious amidst global uncertainty, including trade tariff risks and political conflicts disrupting manufacturing and supply chains, according to Knight Frank.

Reviewing JTC data, Knight Frank said there was a notable increase in sales of leasehold factories with remaining tenures of less than 30 years compared with a year ago.

“Despite the economy performing better than initially expected, business owners and institutional investors continue to operate amidst persistent headwinds. In this context, factories with shorter remaining leases may present an attractive value proposition of providing stable income returns and potential pricing flexibility as investors navigate a more uncertain operating landscape,” Leonard Tay, head of research at Knight Frank Singapore said.

Industrial pricing momentum has continued to run ahead of income growth, with JTC data showing the all-industrial price index rising 1.4% quarter on quarter in Q4 2025, marking the seventh consecutive quarter in which prices increased faster than rents.

Against this backdrop, leasehold industrial assets have remained attractive to income-seeking investors due to positive carry, allowing buyers to manage entry costs and returns even as overall industrial prices climbed 5.0% over the full year, Tricia Song, head of research for Singapore and Southeast Asia at CBRE, said.

"Whilst occupiers are still sensitive to cost pressures, Singapore’s safe-haven status, attractive talent pool, and its strategic location give rise to stability and investment for the long-term. Interestingly, the economic uncertainties have also resulted in new-to-market tenants and businesses expanding their footprint in Singapore, indicating a resilient leasing environment,” Song said.

Overall industrial rents rose 0.5% QoQ in Q4 2025, marking the 21st consecutive quarter of increase, whilst rents grew 2.4% year-on-year for the full year, slowing from 3.5% growth in 2024.

Cushman & Wakefield said business parks remain a two-tier market, with higher rents at city fringe locations, whilst rents of suburban properties are bottoming out.

Warehouse registered the strongest rental growth of 3% YoY in 2025, supported by resilient demand from 3PL players, followed by single-user factory, which recorded 2.7% yoy rental growth. Multiple-user factory rents rose by 1.8% yoy in 2025.

“Industrial rents are projected to grow steadily by up to 2.0% yoy in 2026. Business parks and well-located high-tech developments could surprise on the upside in 2026, following the past few years of underperformance, amid an anticipated acceleration in Grade A office rents and as some cost-sensitive occupiers turn towards decentralised alternatives,” Brenda Ong, executive director of logistics & industrial at Cushman & Wakefield, said.

JTC data revealed that industrial vacancy rates edged up by 0.3% points to 11.3% in 2025, driven by a surge in new supply outstripping net demand. All industrial segments witnessed healthy demand in 2025, with positive net demand recorded.

Both warehouse and business park saw higher vacancy rates in 2025, as their respective net supply overwhelmed net demand.

Ong expects the widening rental gap between office and business park to increase the value proposition of business parks, especially for suburban business parks. 

Vacancy rates continued to diverge between the multiple-user and single-user factory segments, with higher vacancies recorded for the multiple-user factory compared to a year ago, whilst single-user factory vacancy rates seemed to have peaked in 2024 and have fallen to 11.2% in 2025.

Meanwhile, JLL predicts that rents across industrial and logistics assets are expected to remain on their current trajectory, with the All Industrial Rental Index projected to rise moderately by 1 2% in 2026. Growth is expected to be supported by continued AI-led investment and resilient demand in electronics, particularly for higher-specification assets.